UK regulator calls for blocking of O2 and Three
The British telecoms regulator has urged Brussels to block the proposed merger of telecoms operators O2 and Three, which it fears will send mobile phone bills for users in the UK sharply higher.
Writing in the FT ahead of Europe’s first formal statement on the deal, Ofcom chief executive Sharon White said the merger of two of Britain’s four operators could also hit rival high-street retailers and upset existing network arrangements.
The arguments opposing the deal mark the strongest position taken on the £10.5bn merger to date by Ms White, the former Treasury enforcer who became head of Ofcom last year.
Ofcom’s intervention will raise further doubts about the attempt by Hong Kong’s CK Hutchison to acquire O2 from Telefónica to merge with Three, the smallest mobile operator in the UK.
The £10.5bn acquisition of O2 to create the UK’s largest mobile operator will this week come under scrutiny by the European Commission, which is due to send out a lengthy statement of objections listing why the merger will damage competition in the British mobile market.
Ofcom has put its arguments to the commission, according to Ms White, and outlined several particular concerns. She says the creation of another, fourth network to replace O2 "might be one answer" for some of her concerns, but would take "time and considerable investment".
“This is not a broken market,” said Ms White. “Last year, UK mobile firms generated £15bn of revenue. Competition, not consolidation, has driven investment.”
While the decision to approve the merger lies with Europe’s steely antitrust chief Margrethe Vestager, Ofcom is working with the commission and has considerable influence with its decision makers.
The proposed merger is seen as a test case for similar deals across Europe, including in Italy where CK Hutchison is trying to combine its mobile business with the operator owned by VimpelCom. Ms Vestager has raised concerns about the effects of reducing the number of operators from four to three.
Ms White said the “deal could mean higher prices for consumers and businesses” after removing one of the competitors in the market. The merged group would have four in 10 mobile connections in the UK.
Ofcom has carried out research analysing mobile prices over recent years in 25 countries that found that average prices were up to a fifth lower in markets with four operators compared with those with only three established networks.
Ms White is worried the impact of the merger “may be felt on the high street” given it could tip the balance of power “between mobile networks and the independent retailers who help constrain the price of mobile handsets and bills”.
Her worries are expected to be reflected in a forthcoming statement of objections that will be sent to the companies involved in the deal, which will then need to find “remedies” to resolve the concerns.
Hutchison is expected to argue that the best solution to bolster competition would be by agreeing a fixed slice of its network that could be used by rivals groups such as Sky, TalkTalk and Virgin Media to create a more fully fledged mobile business. The FT revealed last week that French billionaire Xavier Niel would also be interested in entering the UK market.
However, Ms White is sceptical about the benefits of this as a solution given “many of our concerns relate to competition between operators who own the networks on which mobile phones rely”.
Hutchison is seen by analysts as unlikely to agree with her views given the benefit of the merger would be negated should it be forced to sell part of its business to create a new network operator.